Auto insurance to get boost

Drivers may see more flexible premiums in future with reform

After rounds of reforms of auto insurance since 2002, China's drivers are still bearing heavy premium fees but a new reform that alleviates this is expected to start soon.

"I have never had a traffic accident since 2012, so how can my premium fees be so much?"

Lu Shuai, a driver with about four years of driving experience, complained. He spends around 7,000 yuan ($1,141) each year on auto insurance, which includes compulsory and vehice damage insurance, for his Audi A4L, and even with his record of having no traffic accidents, can only get minor discounts from insurers.

"The premium fees are still too high," he said, and he's not the only driver in China who thinks so.

"The most common question asked by our customers is 'Can I enjoy more discounts if I have had no traffic accidents in the previous year?'" Shuai Yong, founder and CEO of ichexian.com.cn, a website that offers services including the recommendation and comparison of various types of auto insurance for drivers.

Not fully competitive

Auto insurance in China consists of two parts - compulsory insurance, which has a set annual price of 950 yuan for family vehicles with less than six seats, and other types of insurance including vehicle damage insurance and third-party liability insurance, which are optional for drivers.

But the premium rate is set by the China Insurance Regulatory Commission (CIRC), not the insurers.

In 1995, China launched its insurance law, which required the insurance regulator to set up articles of assurance and premium rates.

Later in 2002, auto insurers were permitted to set premium rates by themselves in an attempt to reform the country's auto insurance market.

However, auto insurers then suffered losses due to a price war among market players who competed to cut premium rates.

Some insurers, such as China United Property Insurance Company Ltd, started to suffer big losses in 2006, according to previous media reports.

To avoid the risk of more losses, the Insurance Association of China (IAC) set up three types of premium rates in 2006, with auto insurers only able to choose one type after being reviewed by the CIRC.

Due to this, smaller insurers cannot compete with the larger players as they are not able to offer a lower premium rate to attract policyholders.

Since the auto insurance market is not fully competitive, the insurers could not flexibly adjust premium rates to improve their profitability, said Shuai.

Meanwhile, drivers have a limited choice of auto insurers, as "the types of insurance offered by them are almost the same," Lu said.

Diversified premium rates

The CIRC released draft guidelines about reforms of premium rates for auto insurance in August this year, the Southern Weekly reported earlier this month.

These reforms may be put into practice at the beginning of 2015, the 21st Century Business Journal reported on September 17.

The draft guideline puts forward a more flexible method of calculating premium rates based on diversified factors including the types of autos and driving habits of the drivers.

Analysts said a reform of the auto insurance is urgently needed with the fast-growing number of cars in China.

"To set up a more fair and orderly market for policyholders, the premium rates will gradually be set by the insurers," Hao Yansu, head of the Insurance Institute with the Central University of Finance and Economics, told the Global Times Wednesday.

"If drivers are very cautious and don't have any traffic accidents on their record in the previous year, their premium fees should be very low," Hao suggested as an example.

Previously, premium rates were always fixed in line with vehicular factors, such as the vehicle price, but in the future, factors regarding drivers, such as driving experience and driving distance, as well as gender, should also be considered, Shuai noted.

In the US for instance, premium fees for female drivers, who are supposed to be more cautious, are generally lower than for male drivers.

Hao noted that one of the key factors of the reform is to set up a database holding traffic accident records of drivers.

Comprehensive database

To set up a comprehensive database for the auto insurance sector, officials of CIRC encouraged more players such as Internet companies to build a network of databases, China Insurance News reported in August.

Shuai's company launched its "Internet of vehicles" hardware product Carbox in July. Once installed on a vehicle, Carbox can assess the driving actions of the driver.

The company is negotiating with about 30 insurers on a plan that will give drivers discounts on insurance premiums according to how little traffic accidents a driver has, said Shuai.

Carbox could also check the vehicle condition, carry out onboard diagnostics and suggest fuel-effective driving paths.

Carbox has around 500,000 users since it was launched, said Shuai.

Shuai believes Carbox will be "very helpful" in collecting data from drivers to promote reforms in auto insurance.

In May, Tencent Holding Ltd, China's leading Internet company, also released its first "Internet of vehicles" hardware product Lubao box, which has similar functions as Carbox, such as examining the vehicle condition and suggesting fuel-effective routes.

Breaking dealers' monopoly

In addition to data collection, analysts said breaking a monopoly by the auto sector is also a necessary step.

Currently in China, auto parts are very expensive, which leads to high costs for auto insurers.

According to a research report released in April this year by IAC and China Automotive Maintenance and Repair Trade Association, the total price of the auto parts of a car is as high as 12.73 times the sales price of the car.

The central government recently intensified efforts in enforcing the antitrust law in the auto industry; a move Hao said will be helpful in reforming auto insurance.

In addition to monopoly, "one-stop services" offered by third-party insurance dealers such as 4S (sale, spare parts, service, survey) stores is another obstacle.

Normally, 4S stores help drivers buy auto insurance when they buy cars, and also repair their cars.

"Since the premium fees of different major insurers are almost the same, I always authorize the 4S stores to buy insurance," Lu said.

But in the future, more insurers might cooperate with third-party international auto repair companies, which would enable drivers to have more choices when they repair their autos, rather than just the 4S stores, Shuai suggested.